Atlanta Fed’s Lockhart Says Second Half of 2015 Is Soonest Rates Could Rise

The Federal Reserve will likely begin to raise interest rates in the second half of 2015, but it could be much longer because the U.S. labor market needs time to fully recover from the recession, Federal Reserve Bank of Atlanta President Dennis Lockhart said Tuesday.

The Federal Reserve building in Washington.

Bloomberg News

The Fed last week said in a statement it will maintain that rate for a “considerable time” following the end of its bond-buying program, which aims to stimulate the economy by lowering borrowing costs and is on track to wind down this year. Chairwoman Janet Yellen, at a press conference, said that “probably means something on the order of around six months.”

Ms. Yellen’s estimate, which could mean an initial rate increase in spring or mid-2015, spooked some investors who expected the Fed would wait longer. Other Fed officials have said it doesn’t represent any change in policy. “The private sector had that kind of number penciled in,” Federal Reserve Bank of St. Louis President James Bullard said Friday.

But Mr. Lockhart said Tuesday it could be longer. “I think it’s a question of conditions that actually are achieved over the next two or three years. I think when Chair Yellen, in a sort of offhand way said maybe six months or longer, that is really a minimum, not a maximum,” he said.

“We’re not going to flip a switch from easy money to tight money. We’re not going to flip a switch where overnight you go from one environment to a radically different environment. I don’t see that happening,” Mr. Lockhart said at a business conference in Atlanta. “The environment after the beginning of normalization of interest rates is going to remain, I think, very accommodative for some time after that decision.”

Mr. Lockhart’s statement Tuesday that “the second half of 2015 is a reasonable timeframe in which we might get to what we’re calling liftoff” echoed his prediction in a March 6 speech that the Fed would wait until “the back half of 2015” to start raising rates.

Most Fed officials expect to start raising interest rates sometime in 2015. The benchmark federal funds rate, a short-term interest rate on interbank loans, has been anchored near zero since December 2008.

Mr. Lockhart said keeping rates low for a long time is justified by continued weakness in the U.S. labor market, including a large number of people who stopped looking for work but would “flow back into the labor force” under the right conditions. “The definition of full employment, which is one of the two objectives that the Federal Reserve is statutorily bound to try to achieve, would involve absorption of some of that shadow labor force. I think that’s going to take some time,” Mr. Lockhart said.

He also said he’s worried about low inflation. The Fed’s preferred gauge of inflation, the price index for personal consumption expenditures, was up 1.2% in January from a year earlier, below the central bank’s 2% target. A persistently low rate of inflation, he said, “could very well be indicative of some more fundamental weakness in the economy.”

Mr. Lockhart is considered a centrist on the Fed’s policymaking committee and participates in its discussions, though he doesn’t have a vote this year.

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